What’s the Recipe for Growth and Prosperity?

What is the best way improve economic performance and boost living standards?

If you listen to politicians, they would like us to think that adopting Policy A or repealing Policy B is a magic elixir. And if that means adopting a flat tax or repealing Obamacare, I’ll certainly be happy.

I mention this because I’m currently in the Dominican Republic for a conference on how best to improve competitiveness and growth (as you can see from the photo, this is hardship duty and I’m very sad that I’m missing the wonderful February weather in Washington).

My speech this morning was about tax reform, and I explained why a flat tax is the best way of collecting revenue in a way that minimizes economic damage and reduces opportunities for corruption.

But even though I’m a big advocate for better tax policy, the lesson from the Economic Freedom of the World Index, and as explained in the video, is that adopting a flat tax won’t solve a nation’s economic problems if politicians are doing the wrong thing in other areas.

There are five major policy areas, each of which counts for 20 percent of a nation’s grade.

Size of government

Regulation

Monetary Policy

Trade

Rule of Law/Property Rights

Now let’s pick Ukraine as an example. As a proponent of tax reform, I like that lawmakers have implemented a 15 percent flat tax.

But that doesn’t mean Ukraine is a role model. When looking at the mix of all policies, the country gets a very poor score from Economic Freedom of the World Index, ranking 125 out of 141 nations.

246 Responses

Two thins are certain, Dan Mitchell is absolutely correct and the current Obama led administration has no recipe for growth, why bother? The more people they can get to believe that the need to live off Uncle Sam and your tax dollars the better.

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For this reason the 2012 election is pivotal for the future of our Republic. Should Obama and his minions not be thrown out of office we will have reached a point where there are more of those who pay nothing and are the takers than those who pick up the tab. No society can survive with that mixture.

It should be said that the economic freedom measured by the EFW Index is not the same as the economic freedom _directly_ experienced by most citizens. The UK and Denmark have NHS-type taxpayer financed health insurance; their housing rental market is over-regulated (facilitating housing bubbles); and in my experience, hiring people for housing repairs or removal is a risky thing to do. None of the above applies to The Netherlands, and yet The Netherlands is placed significantly lower in the EFW Index.

Of course, to the extent that the economic freedom measured in the EFW leads to economic growth and more and better job opportunities, most citizens will benefit _indirectly_.

[…] big governments, but they compensate with ultra-free markets in other areas. And there are also low-tax nations that languish because of mistakes such as excessive regulation and failure to protect property […]

[…] big governments, but they compensate with ultra-free markets in other areas. And there are also low-tax nations that languish because of mistakes such as excessive regulation and failure to protect property […]

[…] world’s most free-market nations. Like Denmark, it compensates for a big public sector with laissez-faire policy in other areas, including nationwide school choice and a partially privatized Social Security […]

[…] the world’s most free-market nations. Like Denmark, it compensates for a big public sector with laissez-faire policy in other areas, including nationwide school choice and a partially privatized Social Security […]

[…] have a Swiss-sized government and now it has a Greek-sized government. Government spending is just one of many policies that impact economic performance, but is anyone surprised that this huge increase in the size of the public sector has had a big […]

[…] But setting aside their despicable hypocrisy, there’s scant evidence, if any, that foreign aid does anything other than foment corruption in recipient nations. And there’s lots of evidence, by contrast, that free markets and small government do create prosperity. […]

[…] But setting aside their despicable hypocrisy, there’s scant evidence, if any, that foreign aid does anything other than foment corruption in recipient nations. And there’s lots of evidence, by contrast, that free markets and small government do create prosperity. […]

[…] think the best part of the interview was when I explained that there are several policies that impact economic performance, but that it’s always better to have lower tax rates rather than higher tax […]

[…] have a Swiss-sized government and now it has a Greek-sized government. Government spending is just one of many policies that impact economic performance, but is anyone surprised that this huge increase in the size of the public sector has had a big […]

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[…] That’s a very good point, and I’ve acknowledged that nations such as Sweden and Denmark are examples of how to do the wrong thing in the best possible fashion. They have large welfare states, but they compensate with very pro-market policies in other areas. […]

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[…] statist or a closet Reaganite. All I’m saying is that, if Romney wins, people who value limited government and freedom should begin working on November 7 to take whatever steps are necessary to prevent Romney from […]

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[…] When you’re sufficiently rich, the difference between 1 percent growth and 3 percent doesn’t really have much of an impact on your personal situation. It’s the rest of us peasants who need the growth and prosperity made possible by free markets and limited government. […]

[…] have a Swiss-sized government and now it has a Greek-sized government. Government spending is just one of many policies that impact economic performance, but is anyone surprised that this huge increase in the size of the public sector has had a big […]

[…] the world’s most free-market nations. Like Denmark, it compensates for a big public sector with laissez-faire policy in other areas, including nationwide school choice and a partially privatized Social Security […]

[…] promote liberty, I’ll confess that it’s easier for me to convince non-French policy makers that free markets and small government are the right approach when there’s more evidence that statism is failing in […]

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[…] who mistakenly think the economy is a fixed pie. If we want to help them understand the benefits of small government and free markets, we need to come up with more effective ways of educating them about the important implications of […]

[…] the point. Several people have asked my reaction to the column, so it’s time to recycle something I wrote back in February. It was about whether a nation should reform its tax system, but the arguments are the same if we […]

[…] promote liberty, I’ll confess that it’s easier for me to convince non-French policy makers that free markets and small government are the right approach when there’s more evidence that statism is failing in […]

[…] understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and Italy, where politicians ostensibly seek to […]

[…] understand by comparing fast-growing economies such Hong Kong and Singapore, which have relatively low burdens of government, with slow-growth economies such as France and Italy, where politicians ostensibly seek to […]

[…] the point. Several people have asked my reaction to the column, so it’s time to recycle something I wrote back in February. It was about whether a nation should reform its tax system, but the arguments are the same if we […]

[…] a very important caveat. It’s good to have an attractive corporate tax system, but there are dozens of other factors that help determine a nation’s prosperity and competitiveness. Indeed, fiscal policy is only 20 percent of a country’s score in the Economic Freedom of […]

[…] a very important caveat. It’s good to have an attractive corporate tax system, but there are dozens of other factors that help determine a nation’s prosperity and competitiveness. Indeed, fiscal policy is only 20 percent of a country’s score in the Economic Freedom of […]

[…] a very important caveat. It’s good to have an attractive corporate tax system, but there are dozens of other factors that help determine a nation’s prosperity and competitiveness. Indeed, fiscal policy is only 20 percent of a country’s score in the Economic Freedom of the […]

[…] those of us who want the prosperity and liberty made possible by smaller government and free markets, it would be ideal if the President actually did think his work was done. If that was the case, […]

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[…] 3. And let’s not forget to add an important caveat that we shouldn’t draw too many conclusions from a quarter or two of data, particularly when there are many factors that determine economic performance. […]

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[…] correctly applies this analysis to the trade sector, but it’s a lesson that has universal applicability. It’s why we need better tax policy, a lower burden of government spending, less regulation […]

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[…] Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government. […]

[…] Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government. […]

[…] Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government. […]

[…] are several possible answers to that question. We can take a big-picture view and argue that the key is free markets and small government, and there certainly is lots of evidence in favor of this assertion when you compare countries over […]

[…] Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government. […]

[…] Sri Lanka does not have a free-market economy, but it’s also not nearly as statist as it used to be. So if the country wants continued growth, at the very least it needs to avoid backsliding. And what it really should do is further shrink government and liberalize the economy. […]

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[…] evidence, he would see that nations can enjoy rapid growth and become rich during periods with small government and free markets, but growth slows considerably once politicians impose high tax rates and lots of […]

[…] Here is some additional evidence of Hong Kong’s sensible approach. Below is a slide from a presentation by Hong Kong government officials, quoting the current Financial Secretary and all his predecessors, covering both the period of Chinese sovereignty and British sovereignty. As you can see, the one constant theme is free markets and small government. […]

[…] We need a programme of economic liberalisation, not the state picking winners and losers. There is no supporting evidence to suggest that big government can deliver economic growth – quite the opposite. Smaller government; a lower tax and regulatory burden; a stable monetary policy; free trade; and a strong rule of law are the recipe for economic growth. […]

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